A Life Without Debt: Surviving the Pay Cut Made Easier

A couple of weeks ago we got the news that the company my husband works for is cutting pay by twenty percent for all employees, for an indefinite period of time. Once I got past the anger and frustration, I took stock of our situation and worked on damage control. While we do have a large emergency fund, I don’t want to touch it unless we have no other choice. Yes, a pay cut could be construed as an emergency, but I think the problem can be addressed through other means. It’s not like we will have no income coming in; we’ll just have less. I decided that I’d also prefer not to lower our savings rate if I can avoid it. And for sure I don’t want to incur any debt. These goals should be attainable with careful planning and spending. Since we already live below our means, surviving this pay cut with minimal damage should only involve adjusting our spending to compensate for the lower level.

While this pay cut is supposed to be short term, I’m acting as though it will be long term. Why? Because I don’t trust that this company will be able to turn things around in the short term and, even if they can, I don’t trust that they won’t just keep pay at a reduced level to save more money. If I’m wrong that will be great, but if this cut drags on for months or even a year, I’ll be prepared because from day one I acted as though our newly reduced income was permanent. I won’t be caught short because I tried to keep my life going on the higher income. We will be living on the reduced number, not borrowing from savings or credit cards trying to support a more expensive lifestyle.

The first thing I did was to pull up our records in Quicken. This pay cut will bring us back to what we were making about six years ago. That’s a huge ouch, but it was also comforting to look back at 2004’s records and see that we were making it just fine then. We were still debt free and we were even managing to have a little fun at the time. Granted, we weren’t able to save as much or to travel as much as we have been recently, but our life wasn’t terrible, either. I know from looking at my old records that we will survive this. That brought my blood pressure down a good twenty points and allowed me to focus on what needed to be done next.

The next thing I did was to look into the future for big expenses coming up that might leave us short. Fortunately, most of the big stuff has been paid for the year. We did have a vacation planned for next month that I cancelled. We were still within the window to get our deposits back, so that money will come in handy for other things. We could have gone on the trip and taken the money out of savings, but that’s not the responsible way to deal with the current problem. Our destination will still be there when pay returns to normal and we can go then, confident that we won’t need the money for something else.

I also called and shopped our insurance policies and negotiated new deals on some of our other services. This is something I should do regularly, but I had gotten lax and not done it for a couple of years. I was able to slash our insurance by an average of $100 per policy, which will make a big difference over the coming months. I was also able to negotiate a better deal on our phone/Internet bundle that will save us about $30/month. There are now no huge expenses looming on the horizon and those that will come later will be less, so this gives us a chance to adjust to the new income level.

Next I looked at our day to day spending. While we’ve remained relatively frugal we have gotten lazy in some areas. Eating out, entertainment, and other fun expenses have crept up over the years. Most of those expenses can be slashed with little effort. We’ll just be staying home more or looking for more free alternatives. Netflix is now gone, and any magazine subscriptions won’t be renewed until things return to normal. The library can handle my magazine needs for free, and DVD’s can be borrowed, too. I will also be tightening the grocery budget. Over the years we’ve begun buying some more expensive products and brands. I will go back to the cheaper alternatives. I’m also planning to increase the size of my garden this summer to further reduce grocery costs. There is also room to conserve more fuel, electricity, and water in this house. We’ve gotten complacent and comfortable over the years and we’ve relaxed some of our spending. I look at this pay cut as a challenge to get back to some of my more frugal ways. It will probably good for me to get those super frugal muscles back into shape.

Finally I called in all the money I was owed from all sources. I collected from some clients that owed me money and had been dilly-dallying on the payment. I cashed in all of my rewards points and programs. I sent in all the rebates I had lying around. While it’s not enough to completely replace the lost income, it does add a good bit to the household accounts and gives us some extra leeway as we adjust to our reduced income level.

This is one of those times that our simple, debt free lifestyle has proven its worth. I know many other people at this company who are in full-on freak out mode right now. They already live above their means and are saddled with debt. Now that their means are reduced they are in a tailspin of financial trouble. Some just bought new cars or homes that they cannot afford on twenty percent less income. The debt collectors won’t wait for the pay cut to be lifted. If this pay cut drags on for months these people will be severely hurt.

We, on the other hand, will be inconvenienced and angry but our life will go on, just at a reduced level. We survived just fine on this income several years ago. We can do it again. If the pay cut drags on we may have to reduce our savings level and direct more money toward the household accounts, but we can spare it. We can get by without touching our current savings or taking on debt. Not having a huge debt load to service is such a relief at times like this. This is why we work so hard to stay debt free. Because when times like this come, it’s so much more bearable. I won’t be juggling bills and robbing our savings to pay credit card bills or loans. Simply adjusting our expenses and spending will be enough. As annoying as this is, I know it would be far worse with debt.

Very good article Sadie! You display and apply some good ol’ common sense which I admire very much. It’s just a real shame that more people cannot read & heed your advice… It would save many from a lot of headaches & heartaches!
Thanks for the article and hang in there!

I have a cook book ‘More with Less’ and I decided to get the book ‘Living More with Less’, what you say here reflects what the contributors to these books say.

Whether one lives below ones means because of religious beliefs or because it is simply common sense makes no difference. What is not generally accepted is that one has to be very, very poor before it is not possible to cut back. It may not be comfortable – but it is possible.

I enjoy reading your contributions very much. They reflect my own view on life and it is a view that is standing those who hold it in good stead given the dire state of the economies of the world.

I have a limited number of carriers available in my rural area of TX, =for bundling phone, Internet, etc. However, the company was bought out and goes by the name Centurylink. They serve several states.

I called them about making a few cost cutting changes. They then said there is a discount available for customers, but THEY HAVE TO ASK FOR IT!

So, if you are a customer of this company, CALL ‘EM!! It may only save you $5 to $10 a month on your bill, but it all helps!

I’d even call whatever phone/internet company you have, in case they have unknown discounts.

Another call worth making is to your cell phone provider. They come out with new plans all the time. You can often get more for less if you call.

Fantastic article. I lost my job last year, and we were able to get by without touching our savings by making a few of these same moves. Already living below your means and being able to cut back from day 1 is the key. I am now gainfully employed again and we learned a lot about our spending and what was truly important. Good luck!

Nicely summed up. We too live way below our means by choice – on about 55% of our take home. The rest goes to retirement savings and knocking down the mortgage. I’m expecting to be laid off in the next month, and while it’s inconvenient to be sending out resumes when I’d rather have just continued on where I was, the whole thing doesn’t throw me into a panic.

If I haven’t found a new job by the time it happens we’ll be just fine for 7-8 months without adjusting our basic spending which is already very frugal, and without counting any unemployment benefits. We’ll just temporarily suspend the savings/extra mortgage pmts and catch up on those once I land somewhere else. Because my company is in bankruptcy protection I won’t get a severance package or any paid notice, I’ll just be paid for any unused vacation. A few years ago that would have sent me into a panic. Now with no consumer debt, and our basic expenses pared down to a level we can just about cover on one salary we have a lot of breathing room.